A country experiencing a current account surplus will see its currency ____, while a country experiencing a current account deficit will see its currency ____.
A) Appreciate, appreciate
B) Appreciate, depreciate
C) Depreciate, appreciate
D) Depreciate, depreciate

Question

Quizplus · Accepted Answer

A current account surplus means that a country is earning more from its exports than it is spending on imports. This creates an excess supply of the country's currency in the foreign exchange market, leading to an increase in its value (appreciation). On the other hand, a current account deficit means that a country is spending more on imports than it is earning from exports. This creates an excess demand for the country's currency in the foreign exchange market, leading to a decrease in its value (depreciation). When a country is experiencing a current account surplus, it means that its exports are greater than its imports, and there is a net inflow of foreign currency. This would increase the demand for the country's currency, causing it to appreciate in value. On the other hand, when a country is experiencing a current account deficit, it means that its imports are greater than its exports, and there is a net outflow of foreign currency. This would decrease the demand for the country's currency, causing it to depreciate in value.

A Country Experiencing a Current Account Surplus Will See Its